Moot Proposition

1. Zion is a developing country with a large population of around 50 million.

Zion is diverse in terms of language, religion and culture. Zion has been

striving towards attracting investments to strengthen its economy and to

build good trade relations with other nations. As markets have become

increasingly competitive, business houses in Zion are focusing more and

more on reinventing themselves as well as on catering to the needs of
consumers. However, businesses in Zion continue to face hurdles such as

lack of adequate infrastructure, unskilled workers and language barriers.

2. In 2002, Zion enacted the Zion Competition Act (Competition Act) which

came into force in a phased manner. The laws of Zion are in pari materia
with the laws of India, barring the limited exceptions set out in this

Proposition.

3. Zions neighbouring country, Xenoria is largely a meat-eating country and

has several meat processing and packaging units. The World Health

Organisation in its recent ranking of worlds health system, has ranked

Xenoria at 132 and Zion at 114. Following release of this ranking, in 2016, the
Government of Zion came out with advertisements on harmful effects of

consumption of unhealthy food, cigarettes and liquor. Various consumer

groups in Zion have been campaigning against processed meat

CCI NLUD Competition Law Moot 2018 20

 products, appealing to the citizens to switch to healthy alternatives. Recent
market reports indicate an uptrend in the demand for vegan meat products

in Zion.

4. Chicken Fiesta is the oldest brand of packaged meat products in Zion.

Chicken Fiesta is owned by Holy-Molly Private Limited (Holy-Molly) and

is based out of Smallville, third largest city of Zion. Started in 1992, Chicken
Fiesta soon became a household name in most of the provinces in Zion. Its

offerings include sausages, salami, frankfurters, and kababs. Several local

newspapers have reported the phenomenal growth of Chicken Fiesta.
Apart from Chicken Fiesta, Ranchers, Moo Foods and Porky Club are

other packaged meat product brands available in Zion.

5. In 2012, Sandwiched Private Limited (Sandwiched) received an

undisclosed amount as funding from a private equity investor. Sandwiched

used this funding to devise new methods and ways to improve its
competitiveness and to bring in better and more efficient processes. In
2015, Sandwiched secured patent protection over a sausage manufacturing
equipment as well as the associated process. Following grant of patent

protection, Sandwiched issued the following official press release

Our Company is pleased to announce that we have secured patent

protection over an equipment and the associated process which will be used
to manufacture sausages. We had applied for patent protection in

CCI NLUD Competition Law Moot 2018 21

 2010. This will help us tremendously in increasing our competitiveness and
efficiency. We are sure that Ranchers will soon become the market leader.

Market share of Chicken Fiesta which had been steadily increasing,

decreased by 6% in 2016. The same year Holy-Molly began looking at re-
jigging its top management to bring fresh perspective into its business.

6. In January 2016, the Government of Zion came out with a policy to

incentivise production and sale of vegan meat products in Zion. Vegan

meat products, vegetarian substitutes for animal meat, mimic certain

qualities (texture, flavour, and/or appearance) of animal-based meat
products. These products can be made from a variety of ingredients such

as soy, textured vegetable protein, and wheat gluten. The policy stated that

certain financial benefits and concessions will be given to vegan meat

processing and packaging units in Zion. This policy decision roused interest
of quite a few conglomerates.

7. VeganMax Private Limited is the largest player in Zion offering vegan meat
products under the brand - VeganMax. As per its annual report for financial
year ended 31 March 2016, VeganMax was employing close to 5,000 people.

VeganMax products are available in most of the major retail chains and

supermarkets in Zion.

8. Holy-Molly entered into a license agreement with Sandwiched for a license

of the patented sausage manufacturing equipment and associated process.
The license agreement stipulated annual payment of 3.6% of the

CCI NLUD Competition Law Moot 2018 22

 sales as usage fee (excluding applicable taxes) by Holy-Molly to
Sandwiched. Holy-Molly also buys its entire requirement of synthetic

casings for manufacturing sausages and frankfurters, from Sandwiched.

9. VeganMax also obtained a license of the patented sausage manufacturing

equipment and associated process from Sandwiched. The terms and

conditions of the license stipulated that VeganMax would annually pay
4.2% of its sales as usage fee (excluding applicable taxes) to Sandwiched.

10. VeganMax has been trying to maximise its revenue and increase its market
share by offering a variety of products such as vegan salami, vegan

sausages, vegan kababs and vegan bacon. To optimise costs, VeganMax

also manufactures synthetic casings which are used in the manufacture of

sausages. Earlier, VeganMax used to procure synthetic casings from

Jamies Kitchen Private Limited (Jamies). VeganMax offers its products

through various retail channels. VeganMax has been deploying personnel

to educate the staff of major retail chains and supermarkets where
VeganMax products are sold, about the qualities and nature of VeganMax
products. VeganMaxs personnel also interact with customers visiting such

stores to get better understanding of their preferences and choices. To

ensure that all retailers charge the same amount from the consumers,
VeganMax requires its retailers to not offer more than 10-15% discount,
depending on the product in question, on the maximum retail price (MRP)
mentioned on the packets.

CCI NLUD Competition Law Moot 2018 23

11. VeganMax has recently entered into a strategic alliance agreement with
Eshoppe to offer its products on Eshoppes platform. Eshoppe, a global e-

commerce behemoth, started operations in Zion in January 2012. In 2015

and 2016, Eshoppe topped the list of the Most Valued Top 50 companies
in the world by ORBS Magazine, ranking above Frugal, the search engine

giant, and Nikola, a pioneer in automotive engineering and artificial

intelligence. Market reports have claimed that Eshoppes Zionian operations

have already started yielding substantial profits which contributed to its

ranking.

12. Consumer Interest Association of Zion (CIAZ), an award-winning consumer

oriented organisation, has been doing commendable work over the past

few years. Recently, CIAZ made a representation to the Ministry of Food

Processing Industries alleging that retailers in Zion are selling unbranded
meat products at unreasonably high margins. The retailers, through an

association, have submitted a consolidated response arguing that margins

on unbranded meat products are not unreasonable given the fact that
various costs such as distribution costs and marketing costs, are borne by

them.

13. In January 2017, CIAZ filed an Information under Section 19 of the

Competition Act alleging that VeganMaxs conduct of limiting the discounts
its retailers can offer on VeganMax products, contravenes the Competition
Act. The Competition Commission of Zion (CCZ) directed the

CCI NLUD Competition Law Moot 2018 24

 Director General (DG) to commence investigation into this alleged anti-
competitive conduct. [Case No.1 of 2017]

14. In February 2017, VeganMax filed an Information under Section 19 of the

Competition Act against Sandwiched alleging that (i) Sandwiched is

discriminating between similarly placed players by charging different

usage fees for licensing the same product, and (ii) usage fee charged by
Sandwiched from VeganMax is unfair and exorbitant. The CCZ was of the

view that prima facie there exists a case warranting investigation and
accordingly, directed the DG to commence investigation into the matter.
[Case No.2 of 2017]

15. Over the past few years, Zion has seen a boom in the e-commerce sector

with investors from all over the world coming forward to invest in this
sector. The steep growth of this sector has been attributed to the deep

discounts offered by e-commerce marketplace players to consumers, by

some market experts.

16. StraightMart, an e-commerce player, started operations in Zion in 2010, and,

till date, has secured funding of USD 12 billion from Aladdin, the largest e-

commerce player in the world at present in terms of revenue.

17. Patagonia, another player in the e-commerce space, has secured funding
worth USD 14.5 billion from three different investors till date. Holy-Molly,
an investor in Patagonia, has 4% shareholding in Patagonia along with

CCI NLUD Competition Law Moot 2018 25

 certain rights namely, (1) right to nominate one board member, (2) right to
appoint the chief executive officer, chief technology officer, and chief

operations officer, and (3) rights pertaining to business plans and

commencement of new business activities. WhiteStone, one of the other
two investors in Patagonia and the second largest private equity fund in the

world, has also invested in StraightMart.

18. In February 2017, Eshoppe filed an Information under Section 19 of the

Competition Act against StraightMart and Patagonia alleging that Patagonia

and StraightMart are offering products at unreasonably low prices. The CCZ
called StraightMart, Patagonia and Eshoppe for a preliminary conference.

StraightMart and Patagonia argued before the CCZ that (i) products are

offered at competitive prices on their platform, (ii) low pricing is not anti-
competitive, and (c) low pricing benefits consumers. However, the CCZ was
of the view that there exists a prima facie case warranting investigation.

[Case No. 3 of 2017]

19. The CCZ directed the DG to investigate into all three matters simultaneously
and submit a consolidated report. The DG issued notices and sought

detailed responses as well as copies of relevant agreements from the

alleged contravening parties.

20. During the investigation, the DG found that the agreements entered into by
VeganMax with retail chains and supermarkets, have a clause specifying
the maximum discount to be offered to consumers. The DG,

CCI NLUD Competition Law Moot 2018 26

 inter alia, enquired of VeganMax as to the rationale behind its dual-
distribution policy and whether such a policy is likely to force retailers out.

VeganMax stated in its response that its distribution policy has been
tailored to suit needs of all types of consumers as well as to bring in
efficacy. VeganMax also stated in its response that (i) prescribing maximum

discounts that can be offered is not, per se, unlawful, given that it has no

market power in the market for vegan and non-vegan meat products, and

(ii) its pricing policies are a result of various factors including unreasonably
high usage fee paid to Sandwiched.

21. Jamies filed an application before the CCZ seeking impleadment in Case No.

2 of 2017. Jamies application alleged that a license of the sausage

manufacturing equipment and associated process patented by Sandwiched,

is given only if a player agrees to source its entire requirement of casings
from Sandwiched. The application alleged that Sandwicheds tie-in

arrangement has severely affected Jamies financials and has led to a 11%
decrease in its market share. The CCZ directed the DG to investigate into
this impleadment application along with the other connected matters.

22. The DG deposed (a) Mr. Sikesh Arora, President of CIAZ, and (b)

representatives of a few supermarkets and retail chains in Case No. 1 of

2017. Mr. Arora stated in his deposition that even though none of the
supermarkets or retail chains of Zion have approached the CCZ, the fact

CCI NLUD Competition Law Moot 2018 27

 that VeganMaxs anti-competitive conduct has resulted in the consumer
harm, is undeniable. Some of the representatives of retail chains and

supermarkets stated in their deposition that their stores are regularly

visited by VeganMax personnel.

23. In response to the notices issued by the DG, VeganMax and Holy-Molly
submitted copies of license agreements as well as non-disclosure
agreements (NDAs) entered with Sandwiched. On perusal of these

agreements, the DG found that the NDAs were executed prior to the
execution of the license agreements. The NDAs required the licensees to
not disclose any of the commercial terms to any other entity, even if such

entity did not operate in the same industry. The DG also found that the

license agreements contained a clause offering discounts in case a player

opted to procure synthetic casings for sausages and frankfurters from
Sandwiched.

24. Sandwiched stated in its response to the DGs notice that (i) VeganMax and
Holy-Molly are not similarly placed players as they operate in different
relevant markets, (ii) usage fee is based on the investment made by

Sandwiched in developing the sausage manufacturing equipment and

associated process, (iii) discount in usage fee offered by Sandwiched is

volume-based as Holy-Molly is the biggest player in the market for meat
products and also procures synthetic casings from Sandwiched, (iv)
decision to charge annual usage fees was taken to ensure that the

CCI NLUD Competition Law Moot 2018 28

 technology is made affordable to all firms, including ones which would
otherwise not be in a position to pay higher one-time fee, and (v) sausages

form only a small part of entire processed meat market and consumers
have the option of choosing other processed products if they feel pricing of
sausages is steep.

25. The DGs notice required Sandwiched to provide the exact cost incurred in
developing the patented equipment and the associated process, and details

of how Sandwiched seeks to recoup this cost by charging royalty in the

form of usage fee. Sandwiched did not provide the cost details to the DG
and stated in its submissions that it is not possible to attribute or compute

the exact cost of development of the patented equipment and the

associated process.

26. StraightMart and Patagonia stated in their responses to the DG that (i) the

discounts offered on their platform are not predatory, (ii) e-commerce

market in Zion is dynamic, (iii) Eshoppes conduct in resorting to litigation
as a tool to stall the growth of its competitors, is anti-competitive.

27. The DG deposed chief executive officers of StraightMart and Patagonia. The

DG posed specific questions on pricing strategies to both. Ms. Arundhati

Mohapatra, Chief Executive Officer of StraightMart, stated in her deposition
that prices at which products are sold on StraightMart are determined by
algorithms. She also stated that StraightMart has invested in state-of-the-
art data mining and predicting bots. Ms. Chanda Kumar,

CCI NLUD Competition Law Moot 2018 29

 Chief Executive Officer of Patagonia, also stated in her response that pricing
predictions and decisions are largely taken by algorithms and bots.

28. During deposition, the Chief Executive Officer of Eshoppe sought permission
of the DG to make written submissions on the use of pricing algorithms and

its impact on competition. In its submissions, Eshoppe stated that pricing

algorithms are complex in design and keep improvising their output by
collecting data. Data is often fed by computer scientists and is also collected

from open sources by the algorithm itself.

29. The DG also noted during the investigation that an e-commerce trade

association Ecom Trade Association, was formed in 2016 to independently

look after lobbying activities on behalf of the industry. Initially started only

by StraightMart, Patagonia and Eshoppe, a few other new e-commerce

players have also applied for membership and some have been granted

membership.

30. The DG submitted a consolidated report to the CCZ recording, inter alia, the
following

(a) VeganMax has market power in the market for vegan meat products in

Zion and it has used this market power to force retailers to offer only
limited discounts on VeganMax products thereby resulting in consumer
harm

CCI NLUD Competition Law Moot 2018 30

(b) Sandwiched is dominant by virtue of the patents it obtained in 2015.
Sandwiched is abusing this dominance to discriminate between players

operating in the market for meat products (vegan and non-vegan) and
by forcing players to buy synthetic casings if they wish to obtain a
license of the patented equipment and the associated process. Usage fee

charged by Sandwiched seems unreasonably high given that

development of a sausage manufacturing equipment would not require

very high investment.

(c) Prices of products offered on e-commerce platforms of StraightMart

and Patagonia are similar and there seems to be a tacit agreement

between the two players. Prices at which certain products were being

sold on both platforms at different points in time were moving in

tandem. Further, the prediction algorithm used by StraightMart and
Patagonia was developed by the same person Mr. Larry Khosla. Even

though there is no other developer who has developed similar

algorithms and also acknowledging the fact that it is too costly to
develop pricing algorithms, as competitors, StraightMart and Patagonia

violated their obligations to behave as competitors by employing

prediction algorithm developed by the same person. On the basis of
preponderance of probabilities, it can be concluded that StraightMart

and Patagonia were not competing with each other on price.

CCI NLUD Competition Law Moot 2018 31

31. After receiving the investigation report from the DG, the CCZ forwarded a
copy to each of the parties, and notified the parties to appear for a hearing

where all three matters would be heard together.

NOTES:

1. Lawyers representing Informants and Opposite Parties are required to

address the arguments that are specifically mentioned in the Proposition

and are encouraged to make additional arguments.

2. Lawyers can use studies/reports pertaining to food habits across the

globe as evidence in support of their arguments if required.

3. Lawyers for Informants will argue on behalf of CIAZ in Case No. 1 of 2017,

VeganMax and Jamies in Case No. 2 of 2017 and Eshoppe in Case No. 3
of 2017.

4. Lawyers for Opposite Parties will argue on behalf of VeganMax in Case

No. 1 of 2017, Sandwiched in Case No. 2 of 2017 and StraightMart and
Patagonia in Case No. 3 of 2017.

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